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By XE Market Analysis April 29, 2015 7:26 am
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    XE Market Analysis: North America - Apr 29, 2015

    EUR-USD pushed above 1.1000 amid a general bid in the euro. EUR-JPY extended higher into three-week territory, and EUR-CHF pushed its head above 1.0500. 'Greeoptimism' (new look negotiating team, ECB lifting of ELA), data showing Eurozone bank lending picking up, firm German manufacturing orders and state inflation data, and positioning into the FOMC, were all at play. Sterling tagged along the euro's ride higher, with Cable trading above 1.5400 for the first time since Mar-2, and GBP-JPY foraying further into eight-week high ground. Elsewhere, AUD-USD drifted below 0.8000 after surging sharply to a three-month high at 0.8027 yesterday. We recommend selling Aussie here as the RBA will not likely be tolerant of pace of the currency's recent gains, and will respond with a rate cut at next Tuesday's SMP. A GS research note also said that there is a risk that S&P places Australia debt on a negative outlook over the coming months, which is a view that's been in the background for some time.

    [EUR, USD]
    EUR-USD rallied above 1.1000 amid a general bid in the euro. EUR-JPY extended higher into three-week territory, and EUR-CHF pushed its head above 1.0500. 'Greeoptimism' (new look negotiating team, ECB lifting of ELA), data showing Eurozone bank lending picking up, firm German manufacturing orders and state inflation data, and positioning into the FOMC, are all at play. The general view re the Fed is that it will keep its cards close to its chest today on the subject of rate lift-off, which is being discounted as dollar negative with the central bank lacking sufficient data evidence to cement timing-of-tightening expectations in markets. Just to note, EUR-USD has failed to close above 1.1000 on six different days between Mar-18 and Apr-6. We also anticipate the U.S. economy will grow out of its recent soft patch (partly caused by inclement weather and a port strike on the west coast), though it might be a while yet before this becomes evident.

    [USD, JPY]
    USD-JPY rebounded above 119.00 after edging out a nine-day low at 118.75 during a thin Asian session. Markets in Tokyo were closed today as part of for Japan's Golden Week holiday. All of the 20-, 50- and 200-day moving averages are currently sitting within 119.00-120.00, and all have pretty horizontal profiles, reflecting flat bigger-picture momentum. The pair has been in a broadly sideways trading pattern since early December, which has roughly been centred on 120.00. There has been nascent speculation that the BoJ may taper its QQE program in 2016, though this is a minority view with just four out of 32 respondents at a recent Bloomberg survey expecting this, while there is a majority who still expect an expansion in stimulus by the end of October. BoJ Kuroda said in a speech on Apr-19 said that while the "underlying trend of inflation has improved...low inflation momentum" is threatening to pull inflation expectations lower. We still favour the upside of USD-JPY as we expect the U.S. economy to grow out of its recent soft patch, which in turn would firm up Fed tightening expectations.

    [GBP, USD]
    Sterling tagged along the euro's ride higher, with Cable trading above 1.5400 for the first time since Mar-2, and GBP-JPY foraying further into eight-week high ground. Ten of the last thirteen days have seen Cable make a higher high, illustrating the strength of the rally from sub-1.46 levels. Markets overlooked yesterday's disappointing prelim UK Q1 GDP data, which at +0.3% q/q was half the median forecast, and down from the 0.6% growth of Q4. While disappointing, the outlook for Q2 is brighter given gains in April PMI survey data and trending improvement in the labour market. We remain bullish sterling near term, though the looming May-7 UK election should be a consideration. Latest polls put the Conservatives in the lead, but without an outright majority, which leaves the prospect of a SNP-Labour coalition as the most likely outcome. Markets thus far haven't been showing any undue anxiety about this, however. Bigger picture, we see headwinds ahead for Cable. The U.S. economy should grow out of its recent soft patch as one-off impacts (inclement weather, port strikes) fade, and we think the Fed will be at least six months ahead of the BoE in tightening.

    [USD, CHF]
    EUR-CHF lifted to three-week highs just shy of 1.0500. This came after the SNB last week expanded the number of groups subject to negative rates on deposits at the central bank, though the current move is natural euro rally. The central bank said at its March policy review that the franc is "significantly overvalued," and would "remain active in the foreign exchange market, as necessary." SNB Chairman Jordan said last Friday that "we will remain active in the foreign exchange market as necessary in order to influence monetary conditions."

    [USD, CAD]
    USD-CAD logged a three-month low at 1.2015 yesterday. This extends the sharp declines that have been seen since mid-April from levels near 1.2700, which has followed a run of weaker U.S. data and the BoC's downplaying of the oil price shock on the Canadian economy, which was backed up by $10 rise in oil prices. That fall in USD-CAD is technically significant as it smashed the series of range lows established over the last four months in the 1.2351 to 1.2400 region. These levels now revert as strong resistance markers, while the overall bias is likely to remain lower. A big-picture support region is at 1.1950-1.2000.

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